- The Washington Times - Thursday, February 12, 2009




The accelerating decline in employment is alarming. Nonfarm payroll jobs have fallen by nearly 3.6 million since the recession began in December 2007, with half the loss occurring in the last three months.

So far in the recession, total employment, as measured by household survey, has declined by 3.2 million, adjusted for population control revisions. When the total employment count is further adjusted to be comparable in definition to payroll jobs, the decline is less severe, 2.6 million, a million less than the drop in payrolls. Although the smaller loss was reported by the Labor Department, it was largely ignored by the mainstream media.

Considering the sad state of the labor market, it also doesn’t help when the media exaggerate its seriousness by comparing the number of job losses today with job declines in past recessions, in particular with the 16-month daddy of all postwar recessions in 1981-82.

Population growth over time adds to the size of the labor force, which today is more than 40 percent larger than it was in the early 1980s. Consequently, comparisons of absolute numbers of jobs losses today with job losses in past years can be misleading. Using percent changes in making such comparisons makes more sense. The use of ratios in comparing data series over extended periods can also overcome the exaggerations that occur from comparing raw changes in levels.

The official dating of business cycle peaks and troughs by the National Bureau of Economic Research is based on the cyclical behavior of a number of economic variables and does not necessarily coincide with the cyclical high and low points of a particular data series, such as employment or unemployment. So in the comparisons that follow, the official cyclical turning points will be used as well as series-specific turning points.

To compare the employment situation in the current recession with the past three recessions, let’s look at the most relevant series: payroll jobs; the ratio of total employment to the working-age population (a measure of labor utilization); and the unemployment rate (unemployment as a percent of the labor force). Employment is a coincident indicator. Unemployment, however, is a lagging indicator, which necessitates making series-specific comparisons that extend beyond general recession trough dates.

So far in the current recession payroll jobs have decreased by 2.6 percent, more than in the 1990-91 and 2001 recessions, even taking into account that jobs continued to decline after the end of both previous recessions. But in the severe downturn of 1981-82, jobs fell 3.1 percent, when measured by the peak-to-trough dates both of the general recession and of the jobs series itself. In the months ahead, the percent decline in jobs may exceed the 1981-82 experience, but it hasn’t happened yet.

In January the present recession completed its 13th month. In the first 13 months of the 1981-82 recession, jobs declined by 2.4 percent, slightly less than now, which points to the sharpness of the current falloff. The 1990-91 and 2001 recessions lasted only eight months.

The total employment-population rate, at 60.5 in January, has declined by 2.2 points so far in this recession, which exceeds the drop in the last three completed recessions, including the 1.8 point decline in1981-82. This grim picture doesn’t much change when the comparison is based on the series-specific turning points of the employment rate or is limited to the 13-month length of the current recession. The implication is that less of our potential supply of labor is being used today than in the harsh recession of the early 1980s.

So far in this recession the unemployment rate has risen to 7.6 percent, the January rate. This exceeds the 6.3 percent unemployment high of mid-2003 during the jobless recovery, but is still below the 7.8 percent rate recorded in mid-1992, following the 1990-91 recession. It is far below the 10.8 percent peak rate reached at the end of the 1981-82 recession.

In terms of change, the unemployment rate so far in this recession has increased by 2.7 points, more than the approximately 2-point rise in the prior two recessions and jobless recoveries. The rate rose even more sharply during and immediately after the 1981-82 recession, by 3.6 points. However, in the first 13 months of that recession, it rose by 2.6 points, less than in the present downturn so far, again pointing to the rapid degeneration of the economy in the current recession.

What can we shake out of this bag of information? A pick-and-choose case can be made that the labor market is not in such dire straits as some make it out to be. But the fact remains that the job market is in bad shape, getting worse, and in need of help. It’s not that the genius with the invisible hand is asleep or wrong, it’s just that sometimes he’s a little slow when it comes to emergencies. Right now, time is not a luxury we can afford.

The economy needs a quick injection. The idea of a one-shot demogrant, a payment given to every American, is bubbling up and deserves serious consideration. Since a government payout is in the cards, why not send a gift certificate with an expiration date to all consumers? It would likely result in a larger and faster increase in consumer spending than the plan we’re getting.

Alfred Tella is former Georgetown University research professor of economics.



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